Novated Leasing in Australia: Eligibility, Costs, and Why EVs Are Stealing the Show

For many Australian employees, a novated lease has become an increasingly appealing route to getting behind the wheel of a new or used car. Rather than traditional financing, this arrangement weds a vehicle lease to your employment contract, allowing payments to flow through payroll deductions. The result is a structure that can ease both the upfront burden and the ongoing cost of running a car—though it comes with its own set of rules and caveats that are worth understanding before signing on the dotted line.

At its heart, a novated lease is a three-way agreement. You select the vehicle, a leasing company or financier purchases and owns it for the duration of the term, and your employer agrees to make the lease payments out of your pre-tax salary. This last element—known as salary sacrifice—is where the bulk of the tax advantage originates. By reducing your taxable income, the arrangement can leave more money in your pocket each pay cycle. Many packages also bundle running costs such as fuel or charging, servicing, tyres, insurance, registration, and roadside assistance, so you are not juggling separate bills. That said, fringe benefits tax rules still apply, and for eligible electric vehicles, an FBT exemption can dramatically tilt the math in favour of going electric.

So who actually qualifies? The core requirement is that you are an employee receiving a PAYG salary. Your employer must be willing to participate, because they are the ones administering the payroll deductions. Approval also hinges on your borrowing capacity, living expenses, dependants, and overall income—there is no published minimum salary, so each application is assessed individually. An interesting exception exists for business owners who pay themselves a PAYG wage through their own company; they may still access salary packaging. Sole traders, however, typically miss out. It is also worth checking what happens if you change jobs mid-lease—your new employer would need to agree to continue the arrangement.

The choice of vehicle is broader than many expect. New cars, used cars from dealerships, and electric vehicles can all fit within a novated lease. Used vehicles do carry lender restrictions, often needing to be under 12 years old at lease end and worth at least AU$5,000 to AU$10,000. But it is the EV angle that is generating the most buzz. Because eligible electric cars may qualify for the FBT exemption, some EVs can end up costing roughly the same—or even less—than cheaper petrol models once tax settings are applied. Leaselab notes this shift, and it is a compelling reason why novated leasing is getting renewed attention from environmentally conscious drivers and budget-watchers alike.

Understanding the cost structure is essential. Upfront, the full vehicle price is financed into the lease, which may require less cash down than buying outright. Ongoing payments are typically fixed, covering the lease itself plus any packaged running costs. At the end of the term, a residual value remains payable if you want to own the car; otherwise, you can refinance or upgrade. Throughout the lease, you generally do not pay GST on running costs included in the package, because the GST is claimed through the structure and passed back as savings. Before committing, compare what you would pay inside the lease to what you would have paid outside it—that is the only way to know if the numbers truly work for you.

This article was prepared independently and is for informational purposes only. Always seek professional financial advice tailored to your circumstances.